Tuesday, 17 November 2015

The Spatial Dimension of US
House Prices

Katharina Pijnenburg, DIW Berlin

House prices spill over from
one region to another region. This is analysed in the literature and is known
as the ripple effect. But when I plotted quarterly house price data over time
for 319 US metropolitan statistical areas, I noticed that these spillovers do
not seem to be uniform across space and time. When looking at this graph it is
easy to see that in coastal regions rising house prices are transmitted to
neighbouring regions, while this does not happen inland.

Figure 1 - Annual
growth rate of regional house prices

Using non-linear estimation
techniques I analyse whether house price spill overs are uniform across space
and time. I find that house prices spill over more when house prices are
increasing then when house prices decline.

I wondered where such a
result could come from and discovered in the behavioural literature the
disposition effect (Shefrin
and Statman, 1985), which reflects the phenomenon in financial markets that
investors sell their winning stocks too soon and hold their losing stocks too
long. The disposition effect also holds for the real estate market and implies
a market slowdown in times of decreasing house prices. Sellers confronting losses
are likely to set higher list prices. If buyers are unwilling to pay these
prices, houses stay on the market for a longer time. Homeowners could decrease
list prices, but instead delay selling in order to avoid nominal losses. This
behaviour reduces the transaction volume in the housing market and,
consequently, limits house price spill overs.

The key question arises as
to why do sellers set higher list prices and delay selling when they are
confronted with a loss.

In the behavioural economics
literature there are several concepts that may provide an explanation. The
concept of mental accounting, for example, means that individuals group
elements of their consumption and expenditures in mental accounts. They follow
their personal rules in managing those accounts. When homeowners hold on to their
losing asset, it is because in their mental account the loss is only booked
when the asset is sold. This means that, if migration, as a driving force of
house price spill overs, slows down due to loss aversion, spill overs should
also decrease. Another potentially relevant concept is cognitive dissonance,
the mental conflict that occurs when people find evidence that their beliefs
are not true. People experiencing cognitive dissonance try to trivialize or
avoid the new information, developing explanations as to why their current
beliefs or assumptions should not be revised. For the housing market this would
mean that homeowners avoid the information of declining house prices or try to
find explanations as to why this decline does not apply to their home. Thus,
they will not reduce their asking price even when confronted with falling house
prices in the region. This behaviour should be reflected in smaller house price
spillovers.

My analysis shows that it is
not appropriate to assume that house price spill overs are uniform across space
and time. In times of declining house prices spill overs are much lower than
what linear estimations suggest. This result can very well be explained by
taking into account seller’s behaviour.

Across many different urban contexts,
young people are currently faced with increasing constraints on the housing
market. Inflating housing prices and stricter mortgage lending criteria render homeownership
out of reach for more and more young people who, increasingly dependent on
temporary employment contracts, are unable to acquire a mortgage at all.
Consequently,increasing numbers of
young people are unable to leave the parental home. Those who do manage to leave
the parental home are increasingly dependent on expensive and/or temporary
rental housing. Hence, the notion of an emerging “Generation Rent” has been gaining
traction in the UK.

It has frequently been highlighted
that parental support, in both financial and non-financial ways, may improve young
people’s housing market position. Parents may help to buy a place for their
offspring or cover (part of) their rental costs. Furthermore, they can provide
useful social networks or broker housing in other ways – giving their offspring
a head start on the housing market. Consequently, inequalities are transmitted
across generations.

The impact of the intergenerational
transmission of inequalities on neighbourhood outcomes is not often studied
however. This is an important omission in terms of understanding inequalities
in the formation of residential trajectories in relation to urban space.

In recent years the population of Amsterdam
has grown substantially, in part due to an increasing influx of students and the
retention of recent graduates. These trends, combined with the housing choices
of middle-class families already present in the city, have played a pivotal
role in the gentrification of Amsterdam’s inner ring (a process which local
authorities have been happy to accommodate and further stimulate). Simultaneously,
the outer ring areas have increasingly become sites where poverty concentrations are increasing.

In our study we have investigated the extent to which parental
support and broader class background play a role in forging young people’s neighbourhood
outcomes. We particularly focused on young people leaving the parental home – a
key moment in the life course and the gradual transition towards independence
and adulthood.

The findings are quite striking:
young people with “wealthy” parents overwhelmingly move to Amsterdam’s
inner-ring neighbourhoods (see the maps). These are predominantly either
high-status and expensive neighbourhoods (the Canal Belt and the affluent Old
South (marked with an F) being good examples), or gentrifying neighbourhoods –
including neighbourhoods of already mature gentrification like De Jordaan(G), or the hip De Pijp neighbourhood (H).
Young people from relatively poor backgrounds mainly move to the city’s outer
ring areas (A, B, and C in the maps), often post-war extensions to the city
characterized by a relatively low status. These patterns hold when controlling
for a range of personal characteristics, including income.

While the housing outcomes of young
people may be the result of financial support, they also reflect broader
processes of social reproduction involving social and cultural forms of
capital. Facilitating their children to move into inner-ring neighbourhoods –
often in relation to participation in education – is a key strategy in this
regard,– making David Harvey’s work on residential differentiation highly pertinent
to understanding processes of change affecting Amsterdam neighbourhoods.

The
choices being effected by the children of middle class families in the Amsterdam
housing market have impacted neighbourhood gentrification, and have contributed
to processes of displacement and exclusion.
Young people from middle class backgrounds – despite their typically low
incomes – are not only able to outbid other young people from poorer
backgrounds, but can also be considered the (potential) carriers of parental
wealth into previously poor (gentrifying) areas. Intergenerational wealth
transfers can allow young people to pay otherwise unaffordable rents or are
part of parental investment strategies in housing in areas where returns are
relatively high. In such ways can parental wealth effectively be put to use to
outbid other households and household types, contributing to their exclusion or
displacement and ultimately advancing the gentrification process.

Cameron Parsell

University of Queensland, Australia

Both our
theories of human behaviour and people’s relationship with place suggest that
surveillance poses an intrusive force. The experience of home relies on privacy
and the absence of surveillance. Home is, or at least is idealised as, a place where
we can experience the freedom to live of our own volition. As a place of
privacy home is juxtaposed to the city; in the modern city surveillance is
omnipresent. Home is positioned as a refuge from the fluid and monitored spaces
of our cities.

Theories
about home, privacy, and our expectations of being free from surveillance are
intuitively appealing. Although children are supervised by parents and
significant others, as adults we expect to live as we choose and without
scrutiny at home. Home is a place where we can do what we want, including
inviting and restricting visitors as we see fit. Indeed, violence and oppression
experienced in the home violate our normative expectations that home is a place
of peace and order where we can exert control.

The
significance of home as a place free from surveillance, on the one hand, and
new models of supportive housing that purposefully adopt surveillance
mechanisms, on the other, motivated the research driving my article. I wanted
to examine the function of surveillance. In the research I sought to
empirically study how tenants experienced surveillance, and how housing and support
providers understood the role of surveillance in the lives of those monitored.

The
research identified two key findings. First, and consistent with existing
theories, surveillance was controlling and restrictive. Tenants experienced,
and housing and support providers advocated for, surveillance to intervene to
restrict freedoms and to protect vulnerable people. It was recognised among
tenants and housing and support providers alike that surveillance is
counterproductive to achieving independence and self-determination.

Second, the
research found that instead of simply being passively subject to surveillance,
tenants purposefully used surveillance for their advantage. Surveillance in
supportive housing was a resource actively used by tenants to create the
conditions to control their lives. Tenants saw surveillance as playing a
desirable role. Surveillance, as provided through the concierge and onsite
support workers, meant that tenants could achieve safety and security by
minimising the threats posed by others. Tenants used surveillance to restrict
unwanted visitors. Contrary to what may be expected based on theories of home
as a place of privacy, surveillance was a resource that tenants drew on to
exercise control and autonomy over how they lived.

The
research’s contribution is to demonstrate the desirability and utility of
surveillance in supportive housing as a mechanism to achieve safety and control
for tenants who had otherwise experienced violence and marginalisation in
mainstream housing and as homeless. For people who had experienced unsafe
neighbourhoods and forms of accommodation – for people who were unable to draw
on informal resources and networks to achieve safety and control – formal
surveillance constituted a useful resource. Although surveillance acted to
limited autonomy, it was also used as a resource that enabled people to exercise
control. Surveillance is thus not the antithesis of home.

About

Urban Studies is the leading interdisciplinary journal for critical urban research and issues. Since it was first published in 1964 to provide an international forum for research into the fields of urban and regional studies, the journal has expanded to encompass the increasing range of disciplines and approaches that have been brought to bear on urban and regional issues